Brussels rejects Italy's budget; sanctions now possible

The European Commission has rejected Italy’s big-spending budget, escalating the row between Brussels and Rome.

Italy’s recently-installed coalition government made a series of spending pledges during the election, and wants to increase the country’s deficit, to 2.4% of annual economic output in 2019, to meet them.

But Brussels has ruled that the budget fails to comply with the Eurozone’s fiscal rules. In a statement it said: “With regret, today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July.”

Under Eurozone rules, deficits should not exceed 3% of gross domestic product. Italy’s proposed budget stays within that, but it is a significant increase on an earlier proposal of 1.9%. That was drawn up by Italy’s economy minister, Giovanni Tria, but was over-ruled by other members of the government.

Heavily-indebted Italy has the second highest debt pile in the Eurozone after Greece, at €2.3trn.

The Commission will now ask members states if they agree that a so-called debt-based excessive deficit procedure (EDP) should be opened. If they do, Brussels will formally ask Italy how it plans to adjust its budget – and if that is ignored, it could impose fines. It is the first time the EC has recommended an EDP.

Member states have two weeks to decide whether or not to approve the EDP.

Speaking before the Commission’s ruling, Italy’s deputy prime minister Matteo Salvini said the 2.4% deficit target was not negotiable. According to Reuters, Prime Minister Giuseppe Conte said he would meet Commission President Jean-Claude Juncker on Saturday to discuss the situation – but also insisted that the budget was valid.